Interview with Dr. Frank Stegherr – University of Applied Sciences

KNOWledge has taken the opportunity to interview Dr. Frank Stegherr from University of Applied Sciences Ulm to capture his qualified input on the Mission Critical nature of Supply Chain Proactivity.

KNOWledge:   Dr. Stegherr, on behalf of KNOWledge and our readers, thanks for taking the time to participate in this interview.   Can you briefly describe for our readers your position at the University of Applied Sciences Ulm?   Dr. Stegherr: I am a Professor for Information Management in Logistics and responsible for the critical interface between Supply Chain Management and the enabling Information Technology. In former times performance of the physical infrastructure determined the performance of information logistics. Today, the situation has changed significantly. The enabling information technology is the driver for many supply chain innovations. The consequence is that the more flexible the IT infrastructure is, the more adaptive the physical logistics – but the prerequisit is that the connecting interface is managed in a proper way.

KNOWledge:
We know that you are a proponent of “pro-activity” within the Supply Chain - why do you to consider pro-activity as mission critical?
 
Dr. Stegherr:
Well, let me discuss this using a practical example. Imagine the semiconductor industry serving the mobile phone or digital camera markets. In the past companies sold these products because of their outstanding technology, their speed or their low power consumption. Over the years the situation has changed. The functionality reached a specific degree of “commoditization” where the customer cannot see a big difference anymore, the products became exchangeable – commodities.  These consumer products sell because they are available on the shelves of the retailer, they have short order fulfillment lead times, and the time between the announcement of new features and their introduction into the market is short. In essence supply chain management became a competitive advantage over the past years.

But having a best-in-class supply chain supporting a time-to-market environment is only the beginning. It must also be adaptable to the position in the product life cycle i.e.  Migrating from a supply chain supporting short time-to-market requirements to a supply chain running high volumes once the product is introduced in the market and cope with the change from a customer specific product to a commodity. And of course, it’s best to make these changes pro-actively, not simply responding when the market is forcing you to do so!

 
KNOWledge: 
With the complexity of corporate supply chains today, what advise can you offer companies who want to be more pro-active and less reactive?
 
Dr. Stegherr:
You are right; the tremendous complexity of today’s supply chains can hinder companies - preventing them from being pro-active. Supply chain management is by default a discipline which integrates several functions from demand to cash. In addition, the interrelations with other processes like financial, product development, legal, sales and marketing result in a level of complexity which is quite difficult to manage.

In order to reveal the common practice in handling this situation, we must take a quick look into companies’ traditional response to complexity. Most do not have strong methods in place to handle this level of complexity. Additionally “steering” projects with a multi-functional impact is not an easy job to do.  The consequence is that each function tries to optimize itself leading to a sub-optimum – which is not necessarily the worst scenario achievable with limited resources and within a finite time.

But the challenge is to align the supply chain vertically as well as horizontally. If the customer service organization cannot fulfill an order, it is not necessarily its problem; this part of the organization is where all problems of the value chain accumulate.  Companies must understand that the problems of the customer service team are in fact supply chain problems within the execution or operational level as well as the strategic and tactical levels. The supply chain can only be as pro-active as it is defined and allowed within the strategic level. What went wrong in operational execution cannot be corrected solely at this level but levels above. Only if specific goals, tasks, and key performance indicators (KPIs) are defined on the strategic level and extended down to the operational level, can supply chains develop and drive the overall optimum results.  As is seen in a lot of cases, the sum of single optima is seldom equal to the overall optimum.

This concept applies especially to the pro-activity of a supply chain. You have to distinguish between short, mid and long-term pro-activity of a supply chain. Short-term flexibility relates to order changes of the customer, in most cases this can be handled at the operational level. But mid-term and long-term changes like adjustments in order fulfillment lead-times, upside flexibilities or the migration from a customer-specific product to a commodity can only be successfully solved at the strategic level. In order to bring the strategic solution down to the operational level it is mandatory to install a vertically aligned supply chain.

 
KNOWledge:  
In the attempt to be pro-active, will companies risk the opportunity to have short-term reactive supply chains to meet the ever-changing demands of their customer? 
 
Dr. Stegherr:
If you understand a vertically integrated supply chain as a centralized approach to solve all problems on strategic level there is definitely a given risk. It’s necessary to understand what kind of long-term, mid-term and short-term flexibility you need in your supply chain. Define your long-term flexibility on strategic level, break it down to the tactical and operational levels and give the operational level enough room to realize their short-term flexibility.

Often process standardization is an argument used by persons in charge of the strategic level. Especially if enterprise software is introduced, standardization is certainly in focus. This is somehow necessary and correct. But the more detailed the processes are, the more product specific they have to become. Discuss the necessary standardization but also think about the flexibility the operational level needs to react.
 
 
KNOWledge:
What supply chain processes should be the focus of companies that want to do a better job of meeting customer's requirements?
 
Dr. Stegherr:
That’s not easy to answer. The planning process has three characteristics which are relevant here. First of all they cover all levels from strategy to tactics to operations. Secondly they incorporate several functions like sales, marketing, operations, production, sourcing etc. and last but not least as supply chain planning is about managing information not just materials, the plans can easily be optimized iteratively. Therefore the planning processes are the backbone for meeting customer requirements.

But plans frequently change and in the worst case they change on customer request after the plan was released and the material is on its way through the value chain. To cover this scenario - the focus to cover changing customer’s requirements must be at the execution level. This flexibility can be realized by concepts like short and robust production lead-times, late-fit or appropriate definition of the order penetration point, stock locations and levels. As these concepts are a matter of supply chain planning the planning processes come back into focus.
 
 
KNOWledge:
What measures or KPI's do you recommend to gauge the success of a company's "pro-activity"?
 
Dr. Stegherr:
Unfortunately, you cannot measure pro-activity directly. But as pro-activity is first of all a matter of order fulfillment, KPIs like “delivery performance” or “fill rate” must be in the focus of the process owners. As these KPIs do not cover potential customer orders a second KPI “ability to deliver” must be taken into consideration. This KPI measures the ability of the supply chain to react to customer’s requests as a result of the pro-activity employed.

But these KPIs are significantly influenced by planning processes; capacities which were not allocated due to wrong planning can hardly be made available to serve an incoming but unplanned customer order. In addition, planning KPIs like plan accuracy, plan-stability and plan volatility can be used to actively manage your planning processes, i.e. to optimize these according to the identified weaknesses.

But more than this, the planning KPIs are an indicator of your ability to be pro-active or your short-term flexibility needs in your supply chain. On the one hand you can have a quite stable plan let’s say for the next 18 months. You foresee the development of your business in the long run, and you have time to prepare for the change, you are pro-active. On the other hand you realize an instable plan not because of a bad process design but because of the behavior of your customers and markets. Even in this case you are able to be pro-active in a sense that you prepare your supply chain for an appropriate mid- to short-term flexibility.
 

KNOWlege:  
What enabling tools exist to helps companies manage the difficulty of matching supply chain capability to customer's requirements?
 
Dr. Stegherr:
First of all a consistent process management discipline is mandatory to keep the strategic, tactic and operational processes well aligned. There are several enabling tools available which support hierarchical process development in each phase with the specific support for each level. In order to support the continuous process improvement and the concentration of the tight resources in the most effective way the seamless integration of KPI monitoring should be an aim.  On the other hand logistics and supply chain management are often seen as not accurate sciences. Therefore decisions on supply chain structures, stocking locations or priority setting are done on experience or by balancing the different interests of the functions involved in the value chain. There are several methods to analyze different supply chain setups and identify the best one.  But these tools don’t necessarily have to be highly sophisticated simulation tools which need a lot of effort to keep them up to date and experience to define the experiments and interpret the results. There are tools available which are not rocket science but are concentrating on daily problems. For example tools to calculate stock targets based on the past selling, forecasts and service levels. Or tools which help to define the structure of supply chains based on methods like the queuing theory.  But whatever tool you want to use to help you taking decisions, the results can only be as good as the basic data available.
 
 
KNOWledge:  
Will your recommendations require a change to organizational structure?
 
Dr. Stegherr:
Organizational changes are often seen as independent from the daily business. Organizations are changed when companies acquire other companies or split off a part. In addition organizations are changed when their heads change. But the correlation to processes is seldom seen. From my point of view process changes must come along with IT, KPI and organizational changes. Only if an organization is capable to support the process execution - only then can the process optimizations be achieved.

The problem is that processes, IT and KPIs are easy to change compared to organizations. If organizations are being changed, the destiny of employees is probably affected which makes it a difficult task. But I think employees are not willing to accept a change in their organizational environment if its basis is only on political intentions of the business unit heads. If they are able to see the direct influence of the organizational structure on the execution of the processes - the acceptance will be there.
 
 
KNOWledge:
Any final "nuggets" of advice for our readers who plan to embark on this journey?
 
Dr. Stegherr:
When we talk about pro-active supply chains we do not talk about quick wins, we talk about a process which must be initiated and needs a lot of patience.  In addition think about the five W’s from Taiichi Ohno – why, why, why, why, why?

Try not to think about the current blocking points and don’t take anything in your supply chain as given. See the pain points in your everyday operations and the requirements of your customers and define your strategy, your customer classes, your product classes, your supply chains as your future setup. Now draw the same picture reflecting your current setup and identify the differences, the gaps, refine your future concept and put it in a place where you look first in the morning.  And from now on, align every decision you take, every action you take, every change in your supply chain with this paper.  Everything which fits will be done, forget about the rest. Split the gaps identified into small manageable tasks which can be done in a short timeframe and with a defined return on investment (ROI).

Over time you will see your supply chain improving and moving towards your desired configuration.
  
 
Thank you Dr. Stegherr for spending you time with KNOWledge and sharing your viewpoints!